Financial Deregulation - Can U.S. Mirror the U.K.?

by Phil Zincewicz

The move towards financial services deregulation in the United States may have been given a shot in the arm with the announced proposed merger between Citicorp and Travelers--a sort of end devoutly to be wished on the part of those who back deregulation, while Congress still wrestles with finding a means to that end--but despite the drama of that announcement there are still a good many questions that remain to be answered.

Supporters of deregulation point to Europe, especially the United Kingdom, as a model, noting that banks, insurance companies and securities firms have co-mingled for years, with no visible harm to the industries involved or to the consumers. But, it must be remembered that there are vast differences between the United States and Europe, not just in cultural conditions, but in terms of the regulatory environments, as well.

In recent interviews with Nick Bunker, senior executive with HSBC Securities in London (formerly the Hong Kong and Shanghai Bank Corp.), Bunker pointed out the basic regulatory differences between the U.S. and the U.K.

While applauding the attempts to break down boundary lines in the U.S. between insurers, banks and securities firms, Bunker said that this type of free and open market has worked well within the U.K. because there is not the cumbersome regulatory climate in the U.K. that exists in the U.S. He said that the successful integration of financial services has come about in the U.K. because business does not face state-by-state regulation of insurance, federal and state regulation of the banking industry and federal regulation of the securities industry.

"Regulation in the U.K. for the banking industry and the insurance industry only exists in the area of solvency," said Bunker. "There is no regulation of rates or marketing procedures as its exists in the U.S." Bunker said also that the insurance industry is regulated by the Department of Trade & Industry (shortly to change over to the Treasury Department), the banking industry by the Bank of England, and the securities industry by the FSA. One body for each industry rather than a federal umbrella over fifty state insurance and banking regulatory agencies. Therefore, those who back deregulation in the U.S., but only under the stipulation that state-by-state regulation of insurance must be retained, should keep in mind that the free and open market exists successfully in Europe primarily because of fewer regulatory agencies and regulations to deal with.

Can the U.S. mirror Europe in terms of a free and open market and still maintain myriad regulators with their own political axes to grind? It's food for thought.

Courtesy of National Insurance News Service